Overview of an Approve the Company’s Share Option Plan

What is a Directors’ Resolution to Approve the Company’s Share Option Plan?

A Directors’ Resolution to Approve a Share Option Plan is a resolution to be passed by the directors of a company to approve the adoption of an employee share option plan.

A Share Option Plan is used to reward the high-performing candidate by allowing them the right to buy the company’s shares.

A Directors’ Resolution to Adopt Share Option Plan grants the company the right to allow employees to buy the company shares once exercised.

How to grant share option plans to employees?

After the adoption of the share option plan, a company can grant options to individuals by issuing option certificates. The company must legally issue an “Option Certificate”, which sets out the terms and conditions of the ESOP. Additionally, it is also customary for the company to issue a letter for a grant of option as a cover letter. This provides more details regarding the procedures to follow for the exercise of the option by the employee.

How to approve the company’s share option plan using the director’s resolution?

There are two options when using a Directors’ Resolution to Adopt Share Option Plan:

  • If a meeting of the board of directors is convened to adopt the share option plan, use board minutes to adopt a share option plan: This should be signed by the chairperson of the meeting.
  • If the board resolution will be passed by way of a written resolution, use a written board resolution to adopt a share option plan: This should be signed by all the directors.

What is a share option?

A share option is not a share. Instead, it is a right to acquire shares when it is exercised. Share options are usually “vested” over time or upon fulfilling certain conditions (e.g., performance targets, time periods). When the conditions are met, the option holder becomes eligible to exercise the right to acquire shares in the company.

What is an employee share option plan?

A share option plan is commonly used by companies to attract, reward, and retain talents. It is commonly known as an “ESOP” (Employee Share Option Plan). Essentially, it allows eligible employees to buy a certain number of shares at a price known as the exercise price. Then, these employees will benefit from the increase in value of the company by exercising their option to buy shares when the shares are at a price greater than the exercise price.

Conclusion

A Directors’ Resolution to Adopt Share Option Plan is a resolution passed by the directors of a company to approve the adoption of an employee share option plan for rewarding and retaining high-performing employees.

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